SEBI Enables Use of Verified Past Performance in Advertisements via PaRRVA Framework

Introduction

In a policy shift, the Securities and Exchange Board of India (“SEBI”) has now allowed Investment Advisers (“IAs”), Research Analysts (“RAs”), and other regulated entities to reference past performance in advertisements, provided that the information is verified by a new framework named Past Risk and Return Verification Agency (“PaRRVA”). This is quite different from SEBI’s previous position, which prohibited performance reference or claims in any public materials whatsoever. The change is meant to increase transparency and comparability while providing investors the assurance that the information they are provided is accurate, risked adjusted, and regulator approved.

Explanation

The PaRRVA framework introduces a highly structured process. Here’s how it works:

• Regulated entities submit their data (including strategy-based or recommendation-based performance) to a designated Performance Data Collector.
• The data is cross-verified with inputs from exchanges, clearing corporations, Association of Mutual Funds in India (“AMFI”), and other credible sources.
• PaRRVA analyzes and publishes the performance on its platform in terms of risk-adjusted returns, consistency, and comparability.
• Only after publication by PaRRVA, entities can refer to the approved data in their advertisements or marketing material.

However, the use of this verified performance is subject to stringent guidelines:

• Ads must not present cherry-picked or client-specific performance.
• The entire dataset and disclaimers must be clearly referenced.
• A QR code or link must be included to allow investors to view the full verified report on PaRRVA’s site.
• Selective timelines or misleading formats are strictly banned.

By mandating uniform risk-return disclosure and third-party verification, SEBI ensures that advertisements genuinely reflect the strategy’s long-term robustness and not just its highs.

Conclusion

This regulatory change strikes a careful balance between protecting investors and ensuring transparency from the industry. Regulated entities can illustrate their historical performance for the first time – with the requirement that any performance metric is accompanied by verified information and considered in the relevant context. It’s not merely about displaying returns; it’s about building credibility through regulated communication with awareness of risk. As this new initiative continues to be rolled out, all of the compliance teams, advisors, and marketing will have to work together to ensure all representations will conform to new SEBI regulations.